Owner of Jay hotel sues city for San Francisco transfer tax

San Francisco city officials might want to set up an escrow account while the California Supreme Court considers a case challenging the methodology of a key tax on hotels as commercial property.

The case that could set a precedent involves Los Angeles County and hotelier Olympic & Georgia Partners. San Francisco, meanwhile, is racking up challenges on its tax collections, with the latest from the owner of the 360-room Jay hotel at 433 Clay Street, the San Francisco Business Times reported. 

The challenge by KHP Capital Partners, owner of the Jay, alleges that it got a bigger tax bill from the city than warranted due to “illegal” and “erroneous” valuations of the property. The bill came in the form of a property transfer tax that was $2.6 million more than it should have been when KHP Capital, run by Joe Long and Ben Rowe, bought the property. At the time of the $221.5 million sale, the hotel operated as a Le Meridien, from Park Hotels & Resorts, the suit contends.

San Francisco raised the rate of its property transfer tax from 3 percent of the property’s assessed value to 6 percent.

The city faces a passel of similar suits from Ritz-Carlton San Francisco, the Beacon Grand and Park Hotels & Resorts, which has six separate cases, including one based on its tax bill from its 2019 acquisition of the Le Meridien that eventually became the Jay.

The latest lawsuit turns on the methodology behind the city’s $205 million valuation of the Le Meridien’s for tax purposes. That’s about $27 million more than KHP’s accounting.

KFP takes issue with how the city valued “non-taxable intangibles” that added to the price of the 2021 deal — much of that tied to the concept of brand equity and reputation. San Francisco City Attorney David Chiu’s office issued a statement that promised a comment once staffers had seen the lawsuit.